01—Abstract
Summary
Summary of the 10-K filed February 21, 2017. Cited figures are marked; the original filing is the authoritative source.
Bristol-Myers Squibb's 2016 Form 10-K shows a year of strong top-line growth driven by its immuno-oncology franchise.
Total revenues rose 17% to $19.4 billion, led by Opdivo (up to $3.8 billiona from $942 million), Eliquis (up 80% to $3.3 billion), and Orencia (up 20% to $2.3 billion). GAAP diluted EPS rose to $2.65 from $0.93, helped by $576 million in divestiture gains, including the sale of investigational HIV medicines to ViiV and the Reckitt OTC business, plus lower R&D license and asset acquisition charges. Non-GAAP diluted EPS increased to $2.83 from $2.01.
Note that the GAAP comparison is flattered by the prior year's large $1.7 billionb in acquisition charges. The filing also flags material risks. Opdivo's first-line lung cancer program suffered a setback when CheckMate-026 missed its primary endpoint, and the company dropped an accelerated pathway for Opdivo+Yervoy in that setting.
Erbitux's North American rights were transferred in 2015, and the diabetes business was sold in 2014. Key exclusivity losses are approaching: Sustiva and Reyataz in the U.S. in December 2017, and Sprycel's European patent was revoked, which may reduce European revenue in 2H 2017. Eliquis's U.S. composition-of-matter patent runs to February 2023.
Management also announced an operating model overhaul with $1.5 to $2.0 billionc in restructuring charges through 2020, and launched a $2.0 billion accelerated share repurchase in February 2017. Balance sheet and cash flow are solid. Cash and marketable securities total $9.1 billion against $6.5 billion of long-term debt, leaving a $2.4 billion net cash position.
Operating cash flow was $2.85 billiond, pressured by a $2.0 billion increase in cash taxes. The dividend was held at $0.38 per quarter, with an increase to $0.39 declared for the February 2017 payment. Notably, the February 2017 Merck settlement, which provides a $625 million initial payment plus royalties on Keytruda, falls after the balance sheet date and is a potential upside catalyst.
02—Key points
Key Highlights
- Revenue grew 17% to $19.4 billion, with the U.S. up 31% to $10.7 billion, driven by Opdivo, Eliquis, and Orencia.
- Opdivo became a major growth driver, rising to $3.8 billion in 2016 from $942 million in 2015, and was approved for multiple tumor types including melanoma, lung, kidney, and head and neck cancers.
- GAAP diluted EPS reached $2.65 (vs. $0.93 in 2015) and non-GAAP EPS reached $2.83 (vs. $2.01), with divestiture gains of $576 million contributing to the GAAP improvement.
- Opdivo's first-line lung cancer setback: CheckMate-026 missed its primary PFS endpoint, and the company will not pursue an accelerated path for Opdivo+Yervoy in that indication.
- Near-term loss-of-exclusivity exposure: U.S. Sustiva and Reyataz face generic entry in December 2017, and the EPO revoked the key European Sprycel patent, creating a likely European revenue decline in 2H 2017.
- Strong liquidity: $9.1 billion in cash and marketable securities against $6.5 billion of long-term debt, a $2.4 billion net cash position, and $4.1 billion of repurchase capacity following the October 2016 authorization.
- Operating model evolution announced: restructuring charges of $1.5 to $2.0 billion through 2020, plus a $2.0 billion ASR executed in February 2017, following the Merck Keytruda patent settlement with a $625 million upfront payment.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 21, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $19.43B$16.56B | +17.3% |
| Cost of Revenue | $4.95B$3.91B | +26.5% |
| Gross Profit | $14.48B$12.65B | +14.5% |
| R&D Expenses | $5.01B$5.92B | −15.3% |
| SG&A Expenses | $4.98B$4.84B | +2.9% |
| Operating Expenses | $13.51B$14.48B | −6.7% |
| Interest Expense | $167.00M$184.00M | −9.2% |
| Net Income | $4.46B$1.56B | +184.8% |
| EPS (Basic) | $2.67$0.94 | +184.0% |
| EPS (Diluted) | $2.65$0.93 | +184.9% |
| Shares Outstanding (Basic) | 1.67B1.67B | +0.2% |
| Shares Outstanding (Diluted) | 1.68B1.68B | +0.1% |
05—Questions
Frequently Asked Questions
What drove the large improvement in BMS's 2016 earnings?
GAAP diluted EPS rose to $2.65 from $0.93, mainly due to revenue growth of $2.9 billion, $576 million in divestiture gains (including the investigational HIV medicines sale to ViiV and the Reckitt OTC business), and lower R&D license and asset acquisition charges ($439 million vs. $1.7 billion in 2015). These were partly offset by $700 million in higher Eliquis profit sharing and higher Opdivo-related spending.
How concentrated is BMS's revenue, and what are the main growth drivers?
Revenue is concentrated in a handful of products. Opdivo ($3.8 billion), Eliquis ($3.3 billion), Sprycel ($1.8 billion), Orencia ($2.3 billion), and the Hepatitis C franchise ($1.6 billion) together account for most of the total. Opdivo and Eliquis were the main drivers of growth. Roughly 55% of 2016 revenue came from the U.S. and about 45% from outside the U.S., which the filing notes exposes results to a strengthening dollar.
What are the biggest risks to the investment case?
The main risks are Opdivo's pipeline execution, given the CheckMate-026 failure and expected competition in 2017; upcoming loss of exclusivity for Sustiva and Reyataz (December 2017) and Sprycel in Europe; pricing pressure from U.S. managed care, government programs, and Medicaid rebate increases; and the pending outcome of U.S. tax reform, which the filing says could materially affect results given BMS's $25.7 billion in undistributed foreign earnings.
How strong is BMS's balance sheet and capital return capacity?
BMS held $9.1 billion in cash and marketable securities against $6.5 billion of long-term debt, a net cash position of $2.4 billion. Operating cash flow was $2.85 billion, lower than 2015 mainly due to $1.4 billion in higher income tax payments. Dividends totaled $2.5 billion in 2016, with the quarterly dividend held at $0.38 and a $0.39 declaration for early 2017. The company has $4.1 billion of repurchase capacity and entered a $2.0 billion ASR in February 2017, funded by a mix of debt and cash.
What is the outlook for the restructuring and operating model changes?
In October 2016, BMS announced a multi-year operating model overhaul that will focus commercial and R&D resources on key brands and markets, streamline manufacturing, and invest in biologics capacity. Total charges are expected at $1.5 to $2.0 billion through 2020, with cash outlays of about 40% to 50% of that total. About $300 million in restructuring charges is expected in 2017, plus roughly $250 million in accelerated depreciation. Management says the program will free resources for growth investments, but cost savings are not guaranteed to materialize.
06—Continue